Assessing the Situation

The New Orleans City Council this week will approve a 2011 operating budget, which probably will include a combination of higher property taxes and a hike in the monthly sanitation fee. The sanitation fee is tacked onto monthly water bills.

Two questions remain in the budget process: How much will the council add to Mayor Mitch Landrieu's proposed $483 million spending plan? How much will the council increase taxes and fees to balance next year's budget?

Landrieu has suggested rolling up local property taxes to their 2007 level — an increase of 8.74 mills. He also wants to bump up the sanitation fee from $12 a month to $20 a month.

Under state law, all property in Louisiana is assessed at least once every four years. The next statewide reassessment begins in January, and it requires assessors to determine the "fair market value" of every parcel as of Jan. 1, 2011.

After each reassessment — and assuming property values rise — tax millages are automatically lowered, or "rolled back," to levels that generate the same total revenues the previous millage levels generated in the immediately preceding year. Then, by a two-thirds vote, tax-recipient bodies such as the council can "roll forward" millages back to the previous levels, which of course would result in more revenues.

By design, property taxes are supposed to generate more revenue over time as property values increase. Many jurisdictions, however, allow taxing authorities to adjust millage rates to meet public needs while keeping taxes at an affordable level. It's always a balancing act, and it's never easy.

Privately, some council members are saying they may hike the city's millage by 5 mills or a little more, but probably not the full 8.74 mills requested by Landrieu, and then raise the sanitation fee above the $20 suggested by the mayor.

No doubt some council members are thinking citizens will be grateful that the tax increase was smaller than the one the mayor sought. Truth is, people who are averse to taxes will bitch about any property tax increase, and the council will catch just as much flak for raising it 8.74 mills as they would for, say, a 6-mill increase or even a 2-mill hike.

Looking beyond the immediate future, the new millage rate will serve as the benchmark for the 2011 reassessment and the ensuing "roll back." That makes the council's decision this week important not just for the next budget year but also for the next four years; the new benchmark will serve as the upper limit for any future "roll forward" of the city's millage.

On a related front, Assessor Erroll Williams will play a huge role in shaping city finances when he begins reassessing property citywide in January — and equalizing assessment practices across the seven former municipal districts. Properties that have been under-assessed for decades will go on the books at or near their fair market values, and property owners all over town will be in for a shock when they get their next assessment notices.

Of course, higher assessments will mean a large roll back of millage rates, which means some property owners could wind up paying less after the reassessment.

On top of that, Landrieu wants a special commission to determine whether all tax-eligible properties are in fact on the rolls. Any increase in the tax base will further spread the burden — and lower taxes for those who've been paying all along.

In the meantime, the council will take an important step this week when it sets the new millage rate. Its decision will have significance far beyond 2011.